Fiscal Policy QuizEconomics Honors

1. Fiscal policy refers to

a. the use of government spending and taxation to influence the level of economic growth and inflation.

b. the adjustment of the GDP for inflation.

c. the purchase and sale of U.S. government securities to regulate the money supply.

d. a policy action by Congress to overrule unpopular budget cuts by the president.

e. the use of fines to penalize unfair business practices.

2. Income taxes affect aggregate demand

a. indirectly by changing investment spending.

b. indirectly by changing consumption.

c. indirectly by changing net exports.d. directly through government

spending.e. directly by changing disposable

income.

3. Fiscal policy affects which two components of aggregate demand either directly or indirectly?

a. Consumption and investment b. Taxes and consumptionc. Government spending and

consumptiond. Net exports and savinge. Investment and net exports

4. If the federal government of the United States decides to cut its spending by 200 million dollars, all else equal, what would happen to aggregate expenditures (AE)?

a. AE would remain constant.b. AE would equal potential real GDP.c. AE would increase.d. AE would decrease.e. We cannot know what would

happen to AE with the information given.

5. Which of the following is not a means to finance government spending?

a. Personal income taxesb. Government subsidiesc. Money creationd. Government debte. Capital gains taxes

6. Fiscal policy in the United States is the result of

a. a yearly budget process involving both the president and Congress.

b. a five-year budget plan overseen by the Office of Management and Budget.

c. a joint budget resolution by federal agencies.

d. an act of Congress.e. a decree by the president.

7. Economists define two components of fiscal policy. These are:

a. Discretionary fiscal policy and automatic stabilizers.

b. Discretionary fiscal policy and reflexive fiscal policy.

c. Obligatory and reflexive fiscal policies.

d. Obligatory fiscal policy and automatic fiscal actions.

e. Automatic stabilizers and reflexive fiscal policy.

8. An automatic stabilizer is

a. a change in government spending aimed at achieving a policy goal.

b. a deliberate change in taxation aimed at increasing real GDP.

c. an element of monetary policy that automatically changes in value as real GDP changes.

d. an element of fiscal policy that automatically changes in value as real GDP changes.

e. a decrease in tax rates as the economy moves into a recession.

9. Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience

a. an increasing national debt.b. a balanced budget.c. an increasing budget deficit.d. a declining budget deficit.e. a declining budget surplus.

10. Which of the following is not related to fiscal policy?

a. Welfareb. Increasing taxesc. Balancing the budget deficitd. Foreign exchange market

interventione. All of these

11. Discretionary fiscal policy is best defined as

a. the deliberate change in tax laws and government spending to change equilibrium income.

b. the automatic change in certain fiscal instruments when real GDP changes.

c. the deliberate manipulation of the money supply to expand the economy.

d. the policy action taken by Congress to reduce the federal budget deficit.

e. the arbitrary fluctuation in tax laws and budget requirements.

12. Budget deficits tend to grow during recessions because

a. real GDP growth is negative, which reduces tax receipts in relation to government expenditures.

b. real GDP growth is positive, which reduces both tax receipts and transfer payments.

c. real GDP growth is negative, which reduces transfer payments in relation to tax receipts.

d. real GDP growth is zero, which causes neither tax receipts nor government expenditures to grow.

e. real GDP growth is positive, which increases tax receipts in relation to government expenditures.

13. Crowding out takes place when the government budget deficit

a. reduces domestic investment.b. increases transfer payments.c. increases tax rates.d. reduces saving.e. increases net exports.

14. The national debt is

a. the current budget deficit plus the interest outstanding.

b. the stock of government bonds outstanding.

c. smaller than the current budget deficit.

d. a product of the government spending less than the taxes it collects.

e. the current budget deficit.

15. All the following are potential costs of the U.S. national debt except

a. higher interest rates that discourage private investment.

b. lower inflation in the future.c. foreign-held debt that must be

repaid.d. reduced domestic wealth in the

future.e. a higher international trade deficit.

16. The growth of the federal budget deficit is linked to all the following except

a. the GDP gap.b. international trade patterns.c. the size of the national debt.d. the unemployment rate.e. the business cycle.

17. We would expect the U.S. federal government to receive most of its tax revenue from

a. tariffs on foreign imports.b. state income taxes.c. federal income taxes.d. sales taxes.e. value-added taxes.

18. When governments issue debt to finance their spending, households and firms expect higher future tax rates that will be necessary to pay for the newly adopted debt, and therefore consume and invest less in the present, and so this effect will limit the increase in aggregate expenditures.

a. Tb. F

19. The government policy that emphasizes tax rate cuts to create incentives for firms to produce more and hire more workers came to be known as

a. demand-side economics.b. Laffer establishment.c. Laffer curve politics.d. supply-side economics. e. aggregate supply chain.

20. If crowding out exists, the expansionary effect of government spending will be

a. smaller than intended.b. larger than intended.c. negative.d. infinite.e. unchanged.

Reference: [23.2.7][1] [A]

Reference: [23.2.8][2] [B]

Reference: [23.2.9][3] [C]

Reference: [23.2.12][4] [D]

Reference: [23.2.27][5] [B]

Reference: [23.3.68][6] [A]

Reference: [23.3.74][7] [A]

Reference: [23.3.75][8] [D]

Reference: [23.3.76][9] [D]

Reference: [23.3.77][10] [D]

Reference: [23.3.78][11] [A]

Reference: [23.3.81][12] [A]

Reference: [23.3.91][13] [A]

Reference: [23.3.96][14] [B]

Reference: [23.3.99][15] [B]

Reference: [23.3.100][16] [B]

Reference: [23.4.132][17] [C]

Reference: [23.2.51][18] [A]

Reference: [23.2.54][19] [D]

Reference: [23.2.58][20] [A]